The promise of toll profit requires double taxation

The spirit of Texas law says you can’t slap tolls on freeways, but the letter of the law has loopholes the size of a Mac truck. The Central Texas Turnpike System operated by the Texas Department of Transportation (TxDOT) includes Hwy 45, Loop 1, and SH 130 and it’s been a net loser since it opened and needed a $100 million taxpayer bailout last year. In fact, TxDOT forecasts show it won’t turn a profit for a generation. This bailout has riled commuters and politicos alike, driving TxDOT to take drastic measures to turn a profit. The Department recently re-financed the debt and added Hwy 45 SE to the ‘system’ in order to help cover the red ink on the other turnpikes.

Here’s the catch.

Hwy 45 SE was built with gas taxes, but because it is a new road which was never previously open to traffic as a FREEway, TxDOT can exploit a loophole and impose tolls on a road that’s already paid for. It’s a double taxation scheme that has angered Texas taxpayers since the dawn of ‘innovative’ toll financing when Texas Governor Rick Perry took office. Gone are the days of traditional turnpikes financed 100% by private sector toll revenue bonds, they’ve been replaced with double taxation, taxpayer subsidized toll roads, and complex leveraged debt instruments not unlike the sub-prime mortgage mess. Politicians of all stripes repeatedly spit out the claim that it’s against the law to impose tolls on existing roads in Texas, but reality is a harsh reminder that what they say versus what they do are two drastically different things.

In the pursuit of profit, TxDOT will steeply increase the toll rates on the system January 1 (25% on SH 130, and 50% on the other roads) and eliminate cash toll booths. So now if those cash payers do not get a government-issued toll tag in their cars to be read by an electronic toll transponder device, under pay-by-mail, they’ll be paying an additional 33% more for every toll transaction than they used to pay.

TxDOT’s original projections showed the Central Texas Turnpike System losing $20-$40 million annually until 2030. Now after re-financing its debt, it claims the system will turn a $5 million profit by 2014, but even then, only off and on. It won’t be self-sustaining in the long-term until fiscal year 2018-2019.

Fuzzy math ‘forecasting’
Truly, toll revenue forecasting is a glorified crap shoot. Some based on educated guesses, others based on speculative wishful thinking that some would call pure fiction, like the bankrupt South Bay Expressway in San Diego where the forecasts were off by nearly 40,000 cars per day. Traffic and revenue consultants know that in order to get work from transportation agencies, they have to make the numbers work, whether or not there’s a reasonable expectation that the cars will actually show up. Their job is to convince bond investors every toll road is a winner to get the road built, even if it means fudging the numbers a little — or a LOT. One report done by retired economist Terry Maynard slammed Wilbur Smith and Associates (routinely used in Texas) for its overblown traffic forecasts on 12 toll projects.

Road builders and highway departments live under the illusion that ‘if you build it, they will come.’ But, once again, reality paints a different picture, whether it’s projects that have gone bankrupt like the San Diego South Bay Expressway or Southern Connector in Greenville, South Carolina — off by nearly 14,000 cars per day — or projects that are operating in the red like Denver’s E-470 and SH 130 in Texas, there are plenty of examples of toll roads that that were built, but the traffic isn’t showing up.

In the case of SH 130, if today there are not enough users taking the road to cover its debts, how will a toll increase bring more drivers? It likely won’t. Just like the state budget planners, they think growth of undeveloped areas will eventually bring the traffic. In a true free market model, if the consumer isn’t buying your product, you don’t get more people to buy your product by raising the price. If anything you lower the price.

An analysis done in 2011, taking the financial statements from 2010 on 9 major toll projects or systems around the country found only two were operating in the black. And that’s just new roads, so-called ‘managed lane’ toll projects that add a new lane(s) down the middle of an existing highway are heavily subsidized with public money in order to give them any prayer of being financially solvent.

So even with TxDOT’s new math, there’s a whole lot of wishful thinking going on. Let’s do common sense math to make a few projections of our own. When you look at the cost to travel SH 130, for instance, for the state-operated northern 45 miles, it costs nearly $7 one-way daily. If you add the 41 miles of the southern leg operated by Spain-based Cintra, that’s another $6.17.

How many travelers can afford to pay almost $13 one way or $26 roundtrip to a take a toll road that doesn’t necessarily even save you time due to the extra distance traveled to get on it? Trucks are even more. They’d be out $50 to travel the whole 86-mile stretch roundtrip. With gas still over $3 a gallon, tolls are an explosion in one’s cost to travel. Hence, toll roads can be the road less traveled, regardless of the wishful thinking of highway officials and developers and the politicians who enable them.

The price of gas
The Alamo Regional Mobility Authority in Bexar County was chided by the Texas State Auditor for not factoring in the price of gasoline into its toll revenue projections. So how did the RMA respond? Ignored the auditor, got the law changed to eliminate the oversight provided by the State Auditor’s analysis of toll forecasts, and did another study, again, failing to factor in the price of gas on toll ridership for two Bexar County toll projects.

It’s clear there’s an agenda, and it’s not to build fiscally sound, self-sustaining toll roads. The numbers are being manipulated to paint a rosy picture, knowing the taxpayers ultimately will be on the hook to bailout failing toll roads. Toll road bureaucracies try to live in a world unaffected by rising gas prices, stagnant incomes, and sustained high un-employment and under-employment. But Texas taxpayers don’t go a day without living under real financial pressures, not in the toll road utopian dream world central planners have designed for commuters — without their consent.

Tolling existing roads
Not only is TxDOT opening highways that are 100% paid for as toll roads, it’s also slapping tolls on existing FREEway main lanes and counting frontage roads as the ‘free’ replacement. Yet another loophole in Texas law allows TxDOT to do just that. It’s done so on U.S. 183 through Lockhart and Austin, plans to on U.S 290 in Austin and near Houston as well as on U.S. 281 and Loop 1604 in San Antonio. It’ll continue to do as long as TxDOT is allowed to get away with it.

With a new legislative session convening January 8 in Austin, now is the time for Texans to actively engage in transportation issues as they did to stop the ill-conceived Trans Texas Corridor. Absent a change in law to remove these loopholes and to insist on self-sustaining toll roads with no public subsidies, they’ll be faced with continued double taxation by paying tolls in addition to gas tax to use just about every state highway in Texas.